On paper there’s cause for concern that higher sticker prices on new cars could drive customers to settle for used cars, but in practice, dealers and lenders say longer terms and leasing continue to move the metal, and high used-car prices also discourage buyers from switching.
In addition, several dealers including some of the publicly traded retail groups said they are willing to accept lower margins on new and used cars and make it up in volume. Finally, dealerships can compensate for thinner gross margins on vehicle sales in F&I, and parts and service — provided the deal gets made.
All in all, there’s not much to worry about in terms of the used-car substitution, said Brian Godfrey, president of Pat Milliken Ford, Redford, Mich. “We are not seeing that,” he told Auto Finance News in a phone interview. Godfrey is chairman of the Ford National Dealer Council.
Despite higher prices, new-car loans and leases are still affordable, relative to used cars, he said. That could change, Godfrey added, if interest rates went up or if used-car prices went down.
“New cars are doing a lot of leasing,” Godfrey said. “But interest rates are low, and even though new-car prices are up, payments are still pretty flat. So at this point, we’re not seeing that, where new cars are so expensive, people are turning to used.”
To be sure, price points are important, but for new versus new, and used versus used, said Alan Brown, general manager and partner at Hendrick Volkswagen Frisco in Frisco, Texas.
In a separate interview, Brown said the Volkswagen brand loses some head-to-head comparisons — even to more expensive cars from VW’s luxury division, Audi — because in his view VW Credit isn’t aggressive enough in offering subvented lease prices for the VW brand.
“If you look at Audi’s success versus the parent company brand, VW, in a lot of cases — [Audi] A4 versus [VW] Jetta, [Audi] Q7 versus [VW] Touareg — because of the lease payment, they [Audi] produce such a lower lease payment, they are having more success,” he said. Brown is president of the Volkswagen National Dealer Council.
“BMW, Mercedes-Benz, Audi, those guys have all pushed leasing,” Brown said. “As long as Mercedes-Benz and Audi can sustain 60%, 65% residual values, and not get taken apart at the auctions when those cars come back, that business model is going to continue to succeed.”Like This Post